Tesla to pay U.S. loans off early

Repayment will be 5 years ahead of schedule, it says

Mar. 8, 2013

Written by

Alan Ohnsman

Bloomberg News

Tesla Motors, which received $465 million in U.S. Energy Department loans to develop and build electric cars, will repay the money five years ahead of schedule in a plan approved by the government.

The carmaker said in its annual report Thursday that the department approved amended terms of the loan agreements that enable it to complete repayment by December 2017. Starting in 2015, the Palo Alto, Calif.-based company will make accelerated payments from excess free cash flow, Chief Financial Officer Deepak Ahuja said in a telephone interview.

"Any remaining balance that's there at the end of 2017 we'll pay off as a balloon payment," Ahuja said.

The maker of battery-powered Model S sedans, led by billionaire Elon Musk, has a goal of becoming profitable this quarter, with deliveries of the vehicle forecast to rise to a record 20,000 units in 2013. Production snags in last year's second half boosted operating expenses and triggered a wider fourth-quarter loss for Tesla than analysts anticipated.

The original terms required repayment of the loans by 2022, 10 years after the funds were drawn down. Tesla said Sept. 25 that it was working with the Energy Department on a modified repayment schedule. Amended terms of the loan agreements were registered Dec. 20 and March 1, the company said Thursday.

Tesla rose 0.6% to $38.47 Friday. The stock has advanced 14% this year.

Musk said in a Bloomberg Television interview with Betty Liu last month that Tesla would repay the money in five years.

The funds, provided by the Advanced Technology Vehicle Manufacturing program to Tesla as well as Ford, Nissan and Fisker, were approved in 2009.

Warrants Tesla issued to the Energy Department as part of the loan agreements vest in 2018 if the loans aren't paid off. They would enable the government to buy more than 3 million Tesla shares at a discount.

"The value of those warrants is very substantial," Ahuja said. "The terms of the original loan had a very good incentive for us to pay off the loan early."

The loan amendment "formalizes that and avoids the vesting of that warrant," he said.

Under the agreement, funds for the early payments will be generated from cash above a $200-million threshold "over our reservations balance," Ahuja said.